Question

A,B & C were equal partners with goodwill $Rs.1,20,000$ in the balance sheet and they agreed to take D as an equal partner on the term that he should bring $Rs.1,60,000$ as his capital and goodwill, his share of goodwill was evaluated at $Rs.60,000$ and the goodwill account is to be written off before admission. What will be the treatment for goodwill?

• A. Write off the goodwill of $Rs.1,20,000$ in old ratio.
• B. Cash brought in by D for goodwill will be distributed among old partners in sacrificing ratio.
• C. Both (A) & (B).
• D. None of the above.

Answer 1

The correct option is C Both (A) & (B).

At the time of admission of a new partner, goodwill brought in by new partner is distributed among old partners in their sacrificing ratio and before that goodwill which exist in balance sheet is distributed among old partner in their old ratio.

In the given question -

Old ratio (A, B and C) = 1 : 1 : 1

New ratio (A, B, C and D) = 1 : 1 : 1 : 1

Sacrificing ratio = Old ratio - New ratio

A's sacrifice = (1/3) - (1/4) = 1/12

B's sacrifice = (1/3) - (1/4) = 1/12

C's sacrifice = (1/3) - (1/4) = 1/12

Goodwill already exist in the books is distributed among old partner in old ratio. Journal entry fir this would be :

Goodwill A/c Dr. 120000

To A's Capital A/c 40000

To B' Capital A/c 40000

To C's Capital A/c 40000

Goodwill brought in by new partner is then distributed among sacrificing partners in sacrificing ratio.